Indians Lost $2.3 Billion in Remittance Payments in 2018; Can Bitcoin Help with Near-Zero Fees?

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According to The Times of India, money transfers cost citizens and non-residents over $2.3 billion in fees last year for clearing payments into India, the world’s biggest market for inward remittance.

Nischal Shetty, the CEO of local Bitcoin exchange WazirX, said that the dominant cryptocurrency could bring down remittance costs to near zero.

In 2018, the global average fee for processing remittance payments was 7 percent. The percentage-based fee amounted to a hefty sum of money for expat employees sending money to their families back in India.

Percentage-Based Fees are the Problem, is Bitcoin a Viable Alternative?

Often, in major remittance markets such as India, China, and the Philippines, it is difficult to process payments through banks and large-scale financial institutions.

Even if the sender of the payment has a bank account, if the receiver of the payment–typically a family member of the sender in a different country–does not have a bank account, the sender has to rely on local remittance outlets and networks to process the payment.

In the Philippines, for instance, millions of workers rely on remittance outlets and microfinancing companies like Lhuiller and Palawan to send and receive payments.

There are tens of thousands of physical locations of remittance outlets in the Philippines at which receivers can cash in and receive payments with low fees.

Source: FoxLad at English Wikipedia

Whether it is India, China or the Philippines, when the payments are cross-border transactions and are no longer domestic, percentage-based fees are often charged to the receiver.

Due to a relatively high number of individuals in India and the Philippines working abroad as expat workers, the amount of money coming into the local remittance markets exceeds domestic remittances.

The problem is that in most cases, expat workers send money back to India to financially support their families and every portion of the income is crucial for the livelihood of millions of households.

The large transaction fees decrease the amount of money that is obtained by the receiver in India. The Times of India reported that as a consequence, the poorer population of the country are most heavily affected by the fees.

The report read:

In India’s case, most remittances come from the Middle East, where millions of migrants work as labor. But, transaction fees eat into their earnings.

The main transfer methods are through banks, money transfer operators or post offices. But with any method, a sizeable chunk of the money transferred is deducted by the transferring body.

For domestic remittances, local remittance outlets or money transfer operators can be substantially cheaper and faster. For small payments at least, there are fixed small fees that could easily compete against the transaction fee of Bitcoin payments or of any other major cryptocurrency.

However, for large payments or international transactions, the Bitcoin blockchain network could easily process cross-border transactions at a fraction of the costs involved with traditional remittance methods.

The advantage of Bitcoin over existing financial systems is that the fees of transactions on the Bitcoin network are not percentage-based.

In November 2018, CCN reported that Binance, the world’s largest cryptocurrency exchange, processed $600 million for less than $7.

In contrast, based on the average 7 percent transaction fee in remittance payments, it would cost $7 to process $100 through conventional remittance service providers.

Can Bitcoin Realistically be Implemented?

Bitcoin will likely not be implemented by remittance providers. But, there are companies Rebit and Coins.ph in Southeast Asia that utilize cryptocurrencies to clear remittance payments.

If Bitcoin can be used to transfer money from one region to another and a domestic remittance service provider is used to bring the money to the receiver at the final phase, it could save a significant chunk of the income received by expat workers.

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1 BTC = $3925.02 USD  (via Coinbase)
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